Anyone who has ever worked on a transaction (I dare say, regardless of legal or any other professional discipline) knows: You log into the data room for the first time - always full of hope - and see: Chaos.

Chaos, according to Greek mythology, is the original state of the entire world; an (empty,) unfathomable space. It is a shadowy realm of mass and energy from which much of the world's power and darkness is said to arise.

I think that sums it up pretty well, albeit with a wink. The folder structure is usually still reasonably comprehensible, but then, just one level below, there are what feels like 100,000 documents labelled "sfdssdfsdgsg". Once you get over this initial shock, you are immediately hit by the second, even more severe shock: a series of subsequent deliveries. And this goes on right up to the last minute. With each further delivery, the fear of overlooking important documents increases, and as the end of the transaction approaches, the desire to close the data room grows.

It seems that the German Federal Court of Justice (Bundesgerichtshof, "BGH") has now sympathised with us, the people suffering from chaotic data rooms, when it dealt with the case to be discussed here. In this case (BGH, decision of 15 September 2023 - V ZR 77/22), the BGH has to decide whether a seller in the context of a property transaction had complied with its duty of disclosure if certain relevant information was only entered into the data room at an advanced stage of the transaction. In this case, the seller uploaded the minutes of the owners' meeting to the data room shortly before the notary appointment. The minutes contained information that could potentially give rise to comprehensive liability on the part of the purchaser. According to the BGH, it must be assumed here that the purchaser had not reviewed the virtual data room in the short period before the notary appointment and therefore had no knowledge of the minutes when the purchase agreement was signed.

In its decision of 15 September 2023, the BGH further states that the mere fact that the seller sets up a data room and allows prospective purchasers to access the provided data does not always allow the conclusion to be drawn that the purchaser will take note of the circumstance requiring disclosure. Only if in a specific case the expectation is justified that the purchaser will take note of certain information provided by the seller in the data room - for example in the context of due diligence - and include it in its purchase decision, is a separate disclosure by the seller not required. According to the BGH, the seller of a developed property who grants the purchaser access to a data room containing documents and information on the property therefore only fulfils its duty of disclosure if and to the extent that it can reasonably expect, based on the circumstances, that the purchaser will gain knowledge of the circumstance requiring disclosure by inspecting the data room. However, this will depend on the circumstances of the individual case, such as whether and to what extent the purchaser carries out due diligence - which it is not legally obliged to do - how the data room and access to it are structured and organized, what agreements have been made in this respect, how important the information to be disclosed is and how easily it can be found in the data room.

In the present case, the seller could not legitimately expect the purchaser to take note of the information contained in the minutes prior to the conclusion of the contract because the seller had uploaded the minutes of the owners' meeting to the data room only shortly before the conclusion of the purchase contract without informing the purchaser. According to the BGH, the purchaser had no reason to view the data room again in the period between the posting of the minutes and the notary appointment without a separate reference to the newly posted document.

What does that mean in practice?

If you are the seller, or the party responsible for uploading the information to the data room, and you wish to avoid potential liability or a cancellation of the transaction, you should follow the instructions below:

• Ensure that the data room is properly organized, implemented and structured,
• Provide complete information at the earliest possible stage, in particular with regard to information that is material to the purchase decision,
• Full disclosure of relevant information (including in response to feedback and requests from the other party as part of the Q&A process or follow-up), and
• Adequate notification of the other party when information is subsequently added to the data room, in particular in the case of information that is material to the purchase decision (the platform may, for example, use automated notifications).